O.C.’s Legislators Drop Opposition to Recovery Plan : Bankruptcy: Political constraints and lack of time persuade delegation to accept proposal without major changes, despite concern that OCTA isn’t paying enough.

Boxed in politically and running out of time, state lawmakers from Orange County reluctantly dropped their opposition to a county bankruptcy recovery plan Thursday, despite nagging concerns that the local transportation agency isn’t bearing enough of the financial burden.

After a private breakfast meeting, leaders of the county’s legislative delegation said they won’t push for major changes in the recovery blueprint.

“We would like to see more from the [Orange County] Transportation Authority,” said new Assembly GOP Leader Curt Pringle (R-Garden Grove). “But it’s also vital that we get something before the session ends.”

In announcing their own recovery plan last month, the county’s legislators proposed to take away twice as much OCTA money as the county plan envisions, and also voiced concerns that there would be little time left to deal with the county’s problems when the Legislature returned this week for its final, four-week session.

County officials were pleased by the stance being taken by the delegation, which has been in an adversarial role for months and unanimously opposed the failed Measure R sales tax hike that was the centerpiece of an earlier recovery plan.

“This is good news,” said Board of Supervisors Chairman Gaddi H. Vasquez. “I’m optimistic. I’m hopeful. I think the momentum is on our side.”

“I’m pleased to see they have come around,” said Supervisor Marian Bergeson. “It certainly would not have worked to the county’s advantage had they not. This is a plan nobody is terribly enthralled with.”

With opposition from the legislative delegation melting away, the spotlight now turns to the cities, which have complained about their treatment under the plan.

Cities, schools and special districts that lost money when a county-run investment pool suffered $1.7 billion in losses last year are now being asked to postpone collecting--and possibly forgive--more than $800 million in debts owed by the county.

A League of California Cities subcommittee made up of several city managers and finance directors met Thursday to discuss the county’s compromise recovery plan. But officials said they have not yet decided whether to recommend that Orange County cities support the county proposal.

Like the cities, the county’s legislative delegation has been pushing for months to have the OCTA play a bigger role in financing the county’s recovery. But the state lawmakers have been put in an awkward political position of late.

On one side, they’re being pressed by Gov. Pete Wilson to accept the plan as it is; on the other, county officials argue that they have produced a locally grown solution that has gotten a consensus of support.

Meanwhile, there are just three weeks left to push any bankruptcy recovery legislation through the Legislature, which adjourns for the year on Sept. 15. Without special legislation, the county is powerless to divert the tax revenue it needs from OCTA.

Given those constraints, the state lawmakers said they decided to bow to the county’s wishes, albeit reluctantly.

“The train has left the station,” Assemblyman Mickey Conroy (R-Orange) said. “The best chance for success lies with the county’s plan.”

Meanwhile, the legislative analyst’s office is studying the county plan to ensure that its revenue projections--including $15 million expected each year from expanded county landfill operations--will pan out. If the county’s finance scenario is deemed too rosy, state lawmakers say, they might press OCTA to dig deeper into its wallet to bail out the county.

“We’re concerned there might be some funny money in the plan that the county really shouldn’t be counting on,” said state Sen. John R. Lewis (R-Orange). “We don’t have a great deal of confidence in the $15 million the county expects from the landfills. I’d hate to get to a point a few years down the line where this whole thing unravels because of that.”

The county plan, approved by the Board of Supervisors on Monday, seeks to divert $38 million in annual revenue from the OCTA to county coffers for 15 years, yielding a total of $570 million.

But in exchange for OCTA support of the sales tax diversion, the county agreed to give the agency $23 million a year for 17 years, siphoning it from funds that in the past have been used for road improvements in the county’s unincorporated area.

State lawmakers such as Lewis and city officials grouse that the county plans to take $570 million with one hand and give back $391 million with the other, while the cities and other special districts are being forced to gamble all that they are owed by the county on the outcome of lawsuits against Merrill Lynch & Co., which the county blames for its bankruptcy.

Lewis and his colleagues are worried that even modest growth in county sales tax receipts could allow OCTA to eventually see a net gain in revenue, while other agencies go begging.

Eager to keep the heat on OCTA, which has been a target of conservatives who feel the agency is a bloated bureaucracy, Lewis and others hope to tinker with the county’s plan to ensure that any additional sales tax revenue goes to the county instead of OCTA. Lewis would like the county, in turn, to use any added income to reduce the $4 million it plans to take each year from the flood control construction effort.

“I think there’s a lot more fat that could be taken from the OCTA bureaucracy rather from programs like flood control,” Lewis said. “All of us live in some trepidation of the Santa Ana River flooding. Any growth in the sales tax could help ease the cuts to flood control.”

Bergeson said she hopes the plan can be approved and on its way to Wilson’s desk within 10 days, but that timetable may be optimistic. The measure has yet to be fully drafted, there has been no final agreement on who the authors will be and the plan faces some formidable obstacles in the coming weeks.

Among them is the anticipated effort to link the Orange County recovery effort to legislation being crafted by Los Angeles County lawmakers to help their beleaguered county, which faces a $1.2-billion budget shortfall. Los Angeles lawmakers want to link up to the Orange County bill to ensure a signature by the Republican governor.

“It’s kind of like having an elephant in the living room--you can’t ignore it,” said state Sen. William A. Craven (R-Oceanside).

Closer to home, the county still must patch up its differences with cities that suffered huge losses when the county’s high-flying investment portfolio crashed and burned.

While some city leaders have reacted favorably to the compromise because it does not call for the diversion of city tax revenue, members of the League of California Cities panel that met Thursday said they still have concerns with several aspects of the plan.

One such issue is an $18-million tab that cities, schools and special districts would be forced to pay to reimburse the county for the costs of transferring the county’s road program to the OCTA.

City leaders said municipalities and school districts suffer enough under the recovery plan and should not have to absorb the $18 million as well.

In negotiations this week, representatives from cities and the county discussed having the OCTA pay the $18 million. But no final agreement on the matter has been reached, said Janet Huston, executive director of the League of California Cities’ Orange County Division.

City leaders also want the panel that will oversee the recovery effort to be expanded from three to five members. Under the existing plan, the panel would consist of a gubernatorial appointee, a representative of the county and a representative of all the more than 200 pool investors. The cities want a city representative and a special district representative added.

“We feel it’s important that as many local interests as possible be represented,” Houston said.

Another problem city leaders have with the plan centers on the timetable for payment to various entities of proceeds from litigation related to the bankruptcy.

Under the compromise plan, schools would receive the first $53 million of litigation proceeds, with all other pool investors, including cities and special districts, sharing the next $324 million. Then the county would receive $176 million. Any proceeds beyond that, up to $1.25 billion, would be split so that pool investors would receive two-thirds of the proceeds and the county one-third.

Huston said cities are concerned about the county gaining litigation money before all creditors are paid in full.

“In other bankruptcies, all creditors get paid first before the organization in bankruptcy gets anything,” she said.

Finally, league officials are working to make sure that all cities receive equal treatment under the recovery plan, regardless of which settlement option they selected earlier this year. While most investors decided to waive their rights to sue for the full return of their pool money, a few opted to accept a slightly smaller cash settlement while retaining their right to sue.

Buena Park City Manager Kevin O’Rourke, a leader of the so-called “Option B” cities, said his city might consider dropping its planned litigation “if it makes financial sense to do so.”

Huston said the league might hold a meeting of all its members next week to recommend whether to approve the plan.

Irvine City Manager Paul O. Brady Jr. said he won’t sign off on the plan until he has fully reviewed it and had his questions addressed.

“I don’t want to rush into something,” he said. “I don’t think it’s reasonable to react too quickly.”